Wednesday, August 12, 2009

Getting Sued

I recently had an off the records conversation with a former CEO of major firm who had spent much of his CEO tenure dealing with more legal suits than any business should have to deal with.

The take away from our discussion was that with the full benefit of hindsight, the company's problem was that (1) it was small, (2) its patented technology was really valuable to very large customers, (3) the company priced licensing of its technology based upon the value of the technology to licensors and their customers.

What the company forgot -- and this is a common mistake of small companies in the United States -- is that a large company looking at a small company always has the choice of litigating and use the law as a weapon to beat the small company to death.

So, when I work with small high tech companies and their business plans talk about barriers to entry including a patent, I will often grimace.

If the technology is unsuccessfully, nobody will care.

If the technology is successful, then the chances of being sued go up.

If the technology is exceptionally successful or useful, it's pretty much a sure thing that you are going to get sued.

Without major reform to patent law in the US - which is clearly needed -- there are no simple legal answers to this problem, except to using pricing as a tool.

Pricing can encourage licensing and make it more attractive than suing. What people forget is that there are many ways of pricing a product. Pricing creativity can reduce legal risk, accelerate revenues and in some cases increase total revenues.

It's worth thinking about before you get sued.

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